by Enid Slack, Enid Slack Consulting Inc. Larry S. Bourne, University of Toronto Meric S. Gertler, University of Toronto August 13, 2003

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(1)Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. SMALL, RURAL, AND REMOTE COMMUNITIES: THE ANATOMY OF RISK. A paper prepared for the Panel on the Role of Government. by Enid Slack, Enid Slack Consulting Inc. Larry S. Bourne, University of Toronto Meric S. Gertler, University of Toronto. August 13, 2003.

(2) Table of Contents. SMALL, RURAL AND REMOTE COMMUNITIES: THE ANATOMY OF RISK............................................ 3. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. 1. SETTING THE CONTEXT: ONTARIO’S CHANGING LANDSCAPE...................................................... 4. 2 CHARACTERISTICS OF SMALL, RURAL, AND REMOTE COMMUNITIES: COMMUNITIES AT RISK............................................................................................................................................................................. 6 2.1 2.2. A CLASSIFICATION OF RURAL AND REMOTE COMMUNITIES .......................................................................... 8 DEFINING THE CHALLENGES FACING COMMUNITIES AT RISK ...................................................................... 10. 3 CURRENT RELATIONSHIPS BETWEEN COMMUNITIES AT RISK AND THE PROVINCIAL GOVERNMENT ....................................................................................................................................................... 16 3.1 3.2 3.3 4. UNINCORPORATED COMMUNITIES ............................................................................................................... 16 PROVINCIAL TRANSFERS TO SMALL, RURAL, AND REMOTE COMMUNITIES ................................................. 18 TAX INCENTIVE ZONES ................................................................................................................................ 20. THE APPROPRIATE LEVEL OF GOVERNMENT AT THE SUB-PROVINCIAL LEVEL.................. 20 4.1 4.2. GOVERNANCE OPTIONS ............................................................................................................................... 22 GOVERNANCE STRUCTURES IN SMALL, RURAL, AND REMOTE COMMUNITIES ............................................. 25. 5 CONCLUSIONS: IMPROVING THE ABILITY OF COMMUNITIES AT RISK TO MEET COMING CHALLENGES ......................................................................................................................................................... 29 5.1 SUMMARY OF RECENT TRENDS .................................................................................................................... 29 5.2 RECOMMENDATIONS .................................................................................................................................... 31 5.2.1 Settlement Strategies ........................................................................................................................... 32 5.2.2 Economic Development....................................................................................................................... 33 5.2.3 Opportunities and New Information Technologies.............................................................................. 34 5.2.4 Finance................................................................................................................................................ 35 5.2.5 Governance ......................................................................................................................................... 37 REFERENCES.......................................................................................................................................................... 38.

(3) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. SMALL, RURAL AND REMOTE COMMUNITIES: THE ANATOMY OF RISK1. As part of its mandate on “Healthy Communities: Investing in Social Capital,” the Panel on the Role of Government asked us to examine, first, the role that the provincial government should play in responding to the challenges faced by the province’s larger cities and city-regions (the challenge of maintaining “Vibrant Cities and City-Regions”), and second, the very different set of challenges faced by small, rural, and remote communities (defined here as “Communities at Risk”). This paper examines the provincial government’s role in responding to the increased social, economic, and fiscal challenges facing communities at risk. A separate paper examines the importance of vibrant cities and city-regions to the provincial economy and social well-being and how to address the challenges they face. This paper is divided into six sections: •. The first section sets the context for the identification and analysis of communities at risk by reviewing recent growth and development trends in the province as a whole. It highlights the changes that have occurred in the population, social structure, and the economy of the province and the geographical distribution of those changes. This section demonstrates that growth has become increasingly concentrated in a few metropolitan areas in the southern part of the province, largely driven by immigration and growth in the services sector, while the rest of the province shows an overall decline in population and economic activity.. •. The second section describes the varied characteristics of small, rural, and remote communities (as the most obvious kind of communities at risk). These communities are characterized by their small size, older demographic structure, population decline, economic specialization, dual labour markets, and geographic isolation. They are, as a result, highly vulnerable to economic and social changes over which they have little or no control.. •. The third section defines the specific challenges facing communities at risk, with particular emphasis on three sets of issues: economic, social, and fiscal.. •. The fourth section describes the current relationships between communities at risk and the provincial government. Although these relationships are similar in broad outline to the provincial relationship with other municipalities in Ontario, there are differences when it comes to balancing local and provincial resources and needs, especially in remote, unincorporated communities. This section also describes some of the provincial. 1. The authors would like to thank Leah Birnbaum and Carol Jacobs for research assistance, the Cartography Office of the Department of Geography, and Ian Bromley and Guy Poirier from the Ministry of Enterprise, Opportunity and Innovation. They would also like to thank David Douglas, Harry Kitchen, Mario Polèse, Michael Trebilcock, and members of the Panel for helpful comments on an earlier draft. 3.

(4) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. transfers to municipalities and tax incentives to businesses in northern municipalities.. 1. •. The fifth section addresses the question of the most appropriate form and level of government at the sub-provincial level for small, rural, and remote communities. It describes and evaluates the advantages and disadvantages of a number of governance options: two-tier government, single-tier government, inter-municipal agreements, special purpose districts, senior government funding of services, and intergovernmental transfers. This discussion is followed by a review of current governance structures in northern Ontario.. •. The sixth and concluding section summarizes the general findings of the paper and, as a basis for further discussion, offers recommendations for policy changes and initiatives that would improve the ability of communities at risk to meet their coming challenges.. SETTING THE CONTEXT: ONTARIO’S CHANGING LANDSCAPE. Current debates on the nature and role of local and regional governments, and discussions of which communities are most “at risk,” must be situated within the context of recent growth and development trends in the province. That context points to an Ontario that is evolving in directions that depart in a number of fundamental ways from previous history. This section of the report offers a brief overview of changes in the social structure and population of the province, an analysis of shifts in the components of population growth, and an assessment of trends in the geographical distribution of urban growth and change. A subsequent section will focus on economic and structural change. As in other western nations, Canada and Ontario have witnessed a series of dramatic social transformations that have altered the social character and landscapes of the province. These include, most prominently, the demographic transition, the shift from the immediate post-war baby boom to the current situation of historically low fertility levels. The combined result has been slower overall growth, huge differentials in the size of individual age cohorts, and a rapidly aging population. Second, in parallel, we have seen an equally sharp transition in life styles and choices of living arrangements, with an increasing diversity in family and household characteristics. Average household size has shrunk from 4.0 persons in the 1960s to less than 2.7 persons in 2001, and as many as 40 percent of all households are now single person households or non-traditional families. This, in turn, has altered the demand for housing and social services, as well as the composition of the labour force, and shifted the locations and thus the political jurisdictions in which those pressures are expressed. Third, immigration has become the largest source of population growth nationally (over 50 percent) and an even larger proportion at the urban level. Immigration has also become overwhelmingly a metropolitan phenomenon, and the principal source of cultural change in the province’s cities. In the Toronto region, for example, over 75 percent of recent population 4.

(5) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. growth is attributable to immigration. Urban growth in this region then is a direct result of policy decisions. In contrast, net domestic migration exchanges with the rest of the country are either zero or negative, depending on how the region is defined.2 Only in a few other cities in the province is the contribution of immigration even close to 50 percent. The geographical distribution of immigrants, however, is more uneven than these figures suggest. Six urban regions in the province together receive over 90 percent of all immigrants to Ontario; most of the rest of the province receives few, if any. This situation is unlikely to change in the future. Nor are recent immigrants likely to disperse into slow-growth areas unless there is a significant change in the distribution of incentives, notably employment opportunities and cultural services. It is not unreasonable to argue that the principal factor accounting for differences in the growth rate between growing and declining communities is the distribution of immigration. Moreover, the fact that this flow of immigrants is predominantly from non-traditional source countries is rapidly changing the face and cultural feel of those cities that are receiving immigrants. These places are becoming very different in terms of the level of ethno-cultural diversity from the rest of the province. The combined outcomes of these trends pose new challenges for any efforts directed at the rationalization and reorganization of government, and for decisions on public and private investment and social services provision. Population growth in the province has become increasingly concentrated in a few selected metropolitan areas, and particularly in the larger metropolitan areas or city regions of southern Ontario. The result is that the province can now be divided, in terms of social change and economic vitality, into two distinct types of regions. The core is the central Ontario urbanized region, extending from Cobourg and Peterborough in the east to Barrie-Orillia-Collingwood in the north, to Kitchener-Waterloo-Guelph in the west, and the Niagara-St. Catharines region in the south. This region housed over 7.4 million people in 2001, and accounted for over 86 percent of provincial population growth during the most recent census period. Adding three other metropolitan nodes - Ottawa, London and Windsor - captures almost 100 percent of provincial growth. The rest of the province, in contrast, exhibits overall population decline, and relatively little job growth, despite the economic boom of the late 1990s (Ontario Smart Growth Secretariat 2003). Virtually all rural areas of the province are in relative, if not absolute, population decline.3 2. The most frequently used definitions of the Toronto region are: 1) the census metropolitan area or CMA (population 4.8 million in 2001); 2) the Greater Toronto Area or GTA (population 5.2 million); 3) various extended urban regions that include all or part of the Golden Horseshoe (population over 7.0 million); and 4) the Central Ontario urban region as defined by the Ontario Smart Growth Secretariat (population 7.4 million). The Toronto CMA had a net domestic migration loss of 44,000 over the last census period (1996-2001), with most of that loss to Oshawa, Hamilton and the surrounding region. The GTA had a small positive migration balance, and the balance increased as the size of the region increased. 3 The definition of rural varies with the purpose, and the agency involved, but here it is used to 5.

(6) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. Moreover, most of the smaller urban areas (CMAs and CAs) located in the periphery of southern Ontario, from Sarnia and Owen Sound in the west to Cornwall and Pembroke in the east, and all urban centres in the north - including the two metropolitan areas of Sudbury and Thunder Bay declined in population during the recent 1996-2001 period (Table 1). Although the rates of decline in Table 1 may seem small, it should be noted that these figures refer only to the last five years. If the same rates are projected over two or three decades the level of decline becomes dramatic. Moreover, the current demographic structures of most regions in the ‘rest-of-the-province’, excluding those for aboriginal communities, are such that future population decline is actually built in, unless current trends in domestic migration and immigration can be reversed. It is in this huge area of the province that we find most of the communities that might be classified as most ‘at risk.’ 2. CHARACTERISTICS OF SMALL, RURAL, AND REMOTE COMMUNITIES: COMMUNITIES AT RISK. The characteristics of communities that lie outside the main urbanized areas of the province are as varied as the settings of those communities. Some are traditional service centres located in declining agricultural zones, others are the locations of primary production in areas of natural resource extraction, still others are small manufacturing or transportation centres that have been bypassed. Others are large urban communities, still others are small or intermediate size towns and cities, but most of the declining centres are relatively small. Despite this wide variation, there is evidence that some properties are common to settlements located in all peripheral regions. Here we draw on evidence provided by studies of Australia (Hugo et al., 2003), Russia and Israel (Portnov and Pearlmutter, 1999), other western countries including the US (Gradus and Lithwick, 2000), and Canada (Bourne, 2000; Polèse and Shearmur, 2002). Generally, such communities tend to be characterized, in relative terms, as sharing some or all of the following attributes: • • • • • • •. their small size, in terms of population, market and labour supply their physical isolation from other, and particularly larger, urban centres their lack of economic diversification a weak and declining economic base and limited employment opportunities high production and servicing costs a limited range of public and private services a small, low-density and often declining rural service hinterland. delimit areas that are not part of (i.e. located outside) census metropolitan areas (CMAs) and census agglomerations (CAs). The latter have a minimum population of 10,000. 6.

(7) TABLE 1: URBAN DECLINE IN ONTARIO’S PERIPHERY, 2001 Population in 000s % Change CMAs and CAs 1996 2001 1996-2001. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. THE NORTH: METRO AREAS: CMAs ( >100,000) Sudbury Thunder Bay. 165.6 126.6. 155.6 121.9. -6.0 -3.7. LARGE CITIES: CAs (>50,000) Sault Ste. Marie North Bay Timmins. 83.6 64.8 47.5. 78.9 63.7 43.7. -5.6 -1.7 -8.0. SMALL URBAN: CAs (>10,000) Kenora Haileybury Elliot Lake. 16.4 13.7 13.6. 15.8 12.9 12.0. -3.2 -6.2 -12.0 -5.3. ALL SMALL URBAN SETTLEMENTS IN THE NORTH EASTERN ONTARIO: CAs (10,000 - 100,000) Belleville Cornwall Pembroke Petawawa. 87.9 58.9 24.6 15.3. 87.4 57.6 23.6 14.4. -0.5 -2.4 -4.2 -5.9. WEST/SOUTHWEST: CAs (10,000 - 110,000) Chatham-Kent 109.7 107.7 -1.8 Sarnia 90.7 88.3 -2.6 Owen Sound 31.7 31.6 -0.2 Notes: CMAs = Census Metropolitan Areas CAs = Census Agglomerations Both definitions include a city or town and where applicable adjacent suburbs that are closely linked to those cities or towns. Source: Statistics Canada; calculations by the authors. 7.

(8) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. • • •. a limited attractiveness for new capital investment and in-migrants often, a harsh climate, and in some regions and countries, a large native population.. These structural characteristics, in turn, lead to particular kinds of social, occupational and employment attributes. Small, rural and remote communities typically display unusual age structures, with fewer individuals in the prime working age group of 19 to 64. As a result they have a larger proportion of children and older people, and overall an aging population, and thus high levels of social dependency. Since young adults tend to migrate out of such communities, both of these characteristics tend to become self-perpetuating. Their employment and occupational structures are also truncated in that they are focussed on only a few sectors and a limited number of employers, and tend to lack jobs in the senior levels of management. Such labour markets are considered to be dualistic. Overall labour force participation rates, on average, also tend to be lower, especially among the female population, while unemployment rates and labour turnover rates are also higher. As a direct consequence many small communities have a bi-polar income distribution, with many low-income and marginal workers and only a few higher income workers in the more specialized employment categories. This dualism is especially the case in isolated resourcebased communities in the north where employers may have to pay a wage premium, and perhaps a housing allowance, for certain types of workers, because of the higher costs of living. Such communities also have a truncated fiscal base, and thus find it difficult to support the wide range of social services, medical facilities, infrastructure and cultural and recreational activities that people increasingly expect. 2.1. A Classification of Rural and Remote Communities. Ideally, for this project we would construct a detailed classification of all small, rural and remote municipalities in Ontario based on, among the other attributes, the nature of the economic base, the relative lack of economic diversity, population size, demographic structure, and the relative level of remoteness. But we do not have the data or resources to undertake such a task. There are, however, examples available for other countries with peripheries that are roughly comparable to Canada’s. In one study from Australia, Graeme Hugo and colleagues (Bamford, Dunne and Hugo, 1999) have developed an accessibility/remoteness index for all 11,338 populated localities in the country based on their degree of access (typically by road) to one of 200 service centres in the country’s urban hierarchy. The index also measured the size of the centre to which residents had the most convenient access. The result was a ranking of localities from highly accessible to high remoteness. A statistical analysis then demonstrated that there were systematic differences between the characteristics of these localities according to their remoteness index, and an inverse relationship between the local growth rate and the remoteness index. 8.

(9) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. In Canada there is no classification of places in rural or northern Canada, nor any agreement on what such a classification should look like.4 The closest we have is a study undertaken by Statistics Canada that examined all 3,600 non-urban (but inhabited) census subdivisions in Canada that were located outside of the country’s major cities and urban centres (McNiven, Puderer and Jones, 2000). The latter included the 27 census metropolitan areas (CMAs) with over 100,000 population and 112 census urban agglomerations (CAs) with populations between 10,000 and 100,000. The authors then estimated the proportion of the employed work force of each of the 3,600 places who worked outside the community in a nearby CMA or CA. In effect they have divided the country into zones, called metropolitan influence zones (MIZs), measured by the intensity of commuting and thus the degree of economic integration with metropolitan (CMA) and urban (CA) areas. Finally, they compared the properties of non-urban (nonCMA/CA) communities based on their level of economic integration with any metropolitan area or city. One result of this analysis for the province of Ontario is included here as Figure 1. In effect the map shows the degree of remoteness, with places that have zero commuting to a CMA/CA as the most isolated. Much of Ontario, including portions of southern Ontario, qualifies as remote.5 Not surprisingly, the characteristics of these remote communities differed systematically with increasing distance from – and therefore less integration with – an urban area. Average growth rates also declined as the degree of proximity to and level of integration (commuting) with an urban area decreased. For all communities with less than substantial linkages and integration with an urban area (defined here as zero percent commuting to a CMA or CA), average population growth rates were negative. Not surprisingly, there is a strong correspondence between the geography of population growth/decline described above and local economic dynamism and growth potential. Recent data on entrepreneurial activity (small businesses with 1-49 employees) in Ontario’s cities and towns illustrates that economic vitality varies according to a very similar geography (Table 2). Generally speaking, the more remote and isolated the community, the worse its economic performance in terms of small business generation. At the same time, it is clear from Table 2 that such communities are not limited to northern Ontario. 4. The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) considers rural Southern Ontario to be the area of the province that is south of Muskoka and outside of the cities of Hamilton, Ottawa, London, and Windsor, the Greater Toronto Area, and the Regions of Niagara and Waterloo. Within the seven urban areas above, municipalities with a population less than 100,000 are also considered to be rural. The Ontario Ministry of Northern Development and Mines reports that the rural population accounts for 13.9 percent of the total population in southern Ontario and one-third of the total population in northern Ontario. 5 To the extent that population density is a measure of remoteness, it can be noted that the relatively small population in northern Ontario located over a large geographic area results in a population density of 1.0 person per square kilometre compared to 104.4 persons per square kilometre in Southern Ontario. The population of northern Ontario represents only 7.4 percent of the provincial population yet the land area represents 89 percent of the provincial total. 9.

(10) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. To conclude, communities can be seen to be “at risk” in differing degrees and for many reasons. They can also be found in highly varied settings, from neighbourhoods in the inner city to small towns and cities, and to most rural communities located outside the areas of metropolitan influence and commuting. They are also spread from the southern parts of the province to the far north. There are, of course, some small towns and rural communities that are growing, for example, in recreational and retirement areas that are rich in amenities. But, again, very few of these communities are located outside of the field of influence and access zone of metropolitan areas. Table 3 provides an illustrative typology of small, rural, and remote communities in Ontario. In this table, communities are classified by their size and their degree of remoteness. Although the challenges vary among communities within this framework, we will demonstrate in Section 2 why the challenges are likely to be the greatest for the smallest and most geographically isolated communities. To restate the argument, the vulnerability of communities to economic dislocation, demographic change and population decline is significantly enhanced when those communities are small, economically specialized, and geographically isolated. In particular, if they are remote from a metropolitan area or large city, there is little or no possibility of substituting for a loss of a job or changes in the locations of jobs, and for access to services without changing ones place of residence. In this case, the lack of substitution means the inability of securing another job (or services) in the home community because the market is so small, or in an adjacent community because that place is too far away. Location really does matter. 2.2. Defining the Challenges Facing Communities at Risk. In what sense are small, rural, remote communities more “at risk” than others? Given their characteristics as outlined above, they are at risk for two principal reasons. First, they are at risk in the sense of potential economic dislocation and demographic decline because they are the most vulnerable to changes in external economic conditions and markets. They are vulnerable precisely because of the economic challenges they face: their economies tend to be overly dependent on one or a few sectors (and even one or a few employers). Opportunities in the local labour market are consequently limited, making such locations less attractive to highly educated workers. The locally generated labour supply often lacks diversity and depth, due to selective out-migration of many of the most highly educated and skilled workers. The relative scarcity of amenities and consequent limitations on local quality of place make the attraction and retention of talented labour all the more difficult. Investment capital is often limited, and production and investment decisions tend to be controlled by non-residents. The absence of a critical mass of firms in the same or related sectors means that specialized local services and infrastructure to support employers are usually in short supply, adding to the cost and difficulty of local production. A decline in the demand for, or prices of, their limited range of products, or depletion of the resource stock on which they are dependent, can have immediate and devastating effects. 10.

(11) TABLE 2: SMALL BUSINESSES IN ONTARIO CENSUS AGGLOMERATIONS. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. Census Agglomerations. Small businesses* (thousands) 2002. Change in Rank in number of Canada small businesses 1998-2002 Barrie 3.6 19.2% 2 Collingwood 0.5 13.6% 4 Guelph 3.0 8.5% 9 Midland 0.8 8.0% 10 Strathroy 0.3 6.4% 12 Kenora 0.6 6.2% 13 Lindsay 0.6 6.0% 14 Orillia 1.0 4.0% 17 Tillsonburg 0.4 3.8% 18 Leamington 1.3 2.8% 22 Peterborough 2.8 2.4% 25 Brantford 2.3 2.3% 26 Port Hope 0.2 2.1% 27 Chatham 1.6 1.0% 32 Kingston 3.4 0.9% 33 Cornwall 1.4 0.4% 35 Woodstock 0.8 0.3% 38 Stratford 0.7 -0.1% 40 Brockville 1.0 -0.9% 44 Belleville 2.5 -1.0% 45 Owen Sound 0.9 -1.3% 48 Cobourg 0.4 -2.4% 54 Haileybury 0.5 -3.5% 67 Simcoe 0.4 -3.8% 70 Pembroke 0.7 -4.2% 75 Sarnia 2.0 -4.8% 77 North Bay 1.8 -5.0% 78 Timmins 1.1 -5.4% 81 Hawkesbury 0.4 -5.5% 83 Sault Ste Marie 1.8 -5.6% 85 Elliot Lake 0.2 -8.6% 100 * includes enterprises with between 1 and 49 employees. Source: BMO (2003) Exhibits 2 and 6.. Change in Rank in CMA/CA Canada population 1998-2002 16.7% 2.0% 7.3% 0.8% 2.7% -2.3% 1.3% 3.9% 4.4% 4.7% 1.5% 1.4% 0.7% -1.2% 1.1% -1.7% 1.7% 1.6% -0.7% -0.4% -0.1% 4.2% -4.4% 0.4% -3.0% -1.8% -1.2% -5.7% 0.1% -4.0% -8.6%. 1 29 6 43 23 80 37 17 14 12 33 36 46 71 40 75 30 32 67 61 60 15 99 52 87 77 70 108 56 96 110. 11.

(12) TABLE 3: AN ILLUSTRATIVE TYPOLOGY OF SMALL, RURAL AND REMOTE COMMUNITIES: Ontario Examples. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. Settlement Size. Rural <1,000 <400 p/km2. Degree of Remoteness/Isolation/Accessibility Within Metro Adjacent to Not Adjacent but Isolated Region Metro Region Near Metro Region King Twp Haldimand Grey County Most of Scugog Northern, Eastern Ontario. Small towns <10,000. Beamsville Caledon East Tottenham. Ingersoll Smith Falls Tweed. Bancroft Mount Forest Walkerton. Dryden Hearst Wawa. Small City >10,000 <30,000. Dundas Orangeville Uxbridge. Midland Leamington Lindsay Port Hope. Elliot Lake Owen Sound Pembroke. Kenora Kirkland Lake. Large City >30,000 <100,000. Newmarket Clarington Welland. Belleville Brantford Chatham Peterborough. Brockville Cornwall Sarnia. North Bay Sault Ste Marie Timmins. Notes: 1) Metro region: Defined as all CMAs (census metropolitan areas) with populations over 100,000 in 2001. 2) Isolated places defined as those in which commuting to work (or for services) to a metropolitan area is impractical or impossible because of long distances and high transportation costs.. Second, they are at risk because this lack of economic diversity and the limited degree of local control mean they are the least capable of responding and adapting to external economic shocks. They have fewer economic sectors over which to spread the impacts of a sudden decline in activity in one sector or industry. Peripheral areas in general tend to exhibit both economic marginality and high levels of income dependency. Some of these conditions reflect the relatively small size of the communities involved. But the challenges are magnified when the communities are also remote or spatially isolated. Remoteness implies many things, but by definition it means an increase in the costs and difficulties in transportation, construction and the provision of services. There is also a price 12.

(13) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. premium for almost all goods in remote communities due to higher transportation costs and/or limited local competition in the retail sector. Few goods, other than land and housing, cost less in such communities. Remoteness also implies isolation of potential employers from suppliers and markets. Where the goods or services being supplied or demanded are standardized and simple, this translates strictly into a cost disadvantage. On the other hand, for more specialized or customized goods and services, isolation limits opportunities for the face-to-face contact that is acknowledged to be so important for the sharing of knowledge that is increasingly important to successful innovation and production (Storper and Venables 2002). These characteristics combine to limit the potential for small, isolated local communities to shift their economic base toward more knowledge-intensive activities – even with widespread access to broadband communication networks. While the availability of new information and communication technologies can help offset some of the disadvantages that local producers currently face, it can certainly not eliminate the most fundamental of these. Those knowledgeintensive economic activities that rely on a high degree of face-to-face interaction, or that depend on a deep, rich labour force of highly educated people in specialized occupational categories can only thrive in urban centres that are large enough to support diversity, variety and a high quality of place. This means that enhanced telecommunications connectivity to many smaller and remote communities will create only limited opportunities for knowledge-based economic activity. Viable activities might include e-commerce services such as call centres and web design. Therefore, it is important not to promote false hopes that such technologies can bring about anything more than a selective decentralization of economic activity to remote communities. Moreover, given the demographic trends documented earlier, it is simply unrealistic to devise regional development strategies predicated on the assumption of future growth. This objective is difficult to suppress, since it has been engrained in economic development practice for many decades. This mindset is reflected, for example, in the recent report of the Smart Growth Panel for Northeastern Ontario (2003), which accepts uncritically that community viability should be based on: “growth in population, growth in economic activity, and growth in household income” (Ontario Smart Growth Secretariat, 2003, p. 7). On the basis of the analysis presented in this report, such an approach clearly needs to be reconsidered. In its broadest definition, however, remoteness not only means high costs or other limitations on producers but, as argued above, a relative lack of access to opportunities, especially jobs, and to social and consumer services, especially specialized services. Undoubtedly the most difficult situation is when extreme physical isolation is compounded by a declining economy and a harsh physical environment. Remoteness can be measured, as outlined in the previous section, by a location that is sufficiently far removed from the nearest community, particularly a larger urban centre, such that out-commuting on a daily basis is impossible, and access to services, especially emergency social and medical services, is difficult or impossible on a real-time basis. One obvious example is the situation when someone loses his or her job in their own community but finds that it is not possible to access (that is, to substitute for) employment lost in one community with a new job in 13.

(14) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. the next community simply because it is too far away, or when transportation connections are poor or too expensive. They cannot change jobs without moving, and thus without substantial costs and inconvenience. The problem with respect to access to medical services is even more apparent. The problem is somewhat different in more intensively settled areas of the province. For example, even in a community at risk of economic dislocation, such as an agricultural community, that is located within (or close to) commuting distance of a major urban centre, residents have the opportunity – or at least the potential – to seek employment (or access to services) elsewhere without relocating. This is a different situation than that for residents of a community that is far removed from any other opportunities. For the latter there is no potential spatial substitution of employment opportunities. As growth in the province becomes more uneven, and peripheral areas continue to decline, the problems will be magnified. The social challenges that flow from these attributes, as outlined in our paper on Vibrant Cities, revolve around the themes of demographic change and the effects of economic restructuring on employment and income opportunities. The demographic structure of most small and isolated communities builds in subsequent population decline (as shown in Table 1.1), and inevitably means higher servicing costs because of an aging population and high levels of social dependency. At the very least, this implies the need for a stronger role for senior levels of government in responding to the challenges. Is decline, in demographic or economic terms, always a problem? The answer is no. It is possible for a community to age, or downsize, gracefully in ways that are both efficient and equitable. But it is not easy to do so. Decline, even more than growth, tends to be selective. At the same time senior governments are caught in a dilemma: how to support a reasonable level of jobs and social services, without extremely high levels of subsidy and without increasing levels of social dependency, while also trying to manage decline. The major fiscal challenge facing communities at risk is providing an adequate level of services at a reasonable tax rate. Because of the vast distances involved with remote communities, services such as police and fire protection are limited, garbage collection is often non-existent, and land use planning is often performed by a senior level of government. Local services mainly comprise roads, sewer and water, garbage disposal, social services, and recreation.6 On the expenditure side, low population density often means very high per capita expenditures. For example, local governments in small, rural, and remote communities with small populations are unable to take advantage of economies of scale in administration. Expenditures on roads, water and sewers are often higher because of the harsh climatic conditions and terrain (tundra). Expenditures on recreation and culture are considerably higher on a per capita basis because 6. With respect to water and sewers in rural areas, public health considerations require that government regulate and monitor the quality of water from private systems. With respect to garbage disposal, there is also a need to ensure that garbage is transported to landfill sites. 14.

(15) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. almost every municipality has a community centre, an ice arena, and a variety of recreational programs. Fire and police expenditures tend to be lower, however, because fire protection equipment is much less sophisticated than in more urbanized areas (no high rise buildings and a relatively small geographical area to cover) and fire departments are often comprised of volunteers. The response time cannot compare with that in urban areas because of the distances and there are no externalities because the properties are so far apart. Policing is almost always the responsibility of a senior level of government because of the economies of scale associated with that service. On the revenue side, small rural and remote areas do not generally have sufficient capacity to finance local expenditures. In theory, the sources of revenue available to local governments in remote and rural areas are the same as local governments elsewhere: property taxes, user fees and intergovernmental transfers. In reality, however, the characteristics of the population and the tax base in remote areas restrict the use of many of these revenue sources. It is difficult for some communities to levy a property tax because the tax base is limited relative to local needs. One reason is the lack of private ownership of properties in remote areas so that there are fewer properties to tax. Furthermore, the value of properties in remote communities tends to be much lower than the value in urban areas and is often lower than the cost of construction.7 The proportion of property tax revenues levied on agricultural land, forests, mines, and pipelines is likely to be higher in remote areas than in urban areas. The nature of these properties requires different tax treatment than other commercial and industrial properties. There is little or no assessment growth in northern municipalities. As noted by the Smart Growth Panel for Northeastern Ontario (Ontario Smart Growth Secretariat, 2003, p. 34), “the property-tax base of municipalities has been under increasing strain.” Fewer commercial and industrial taxpayers (resulting from closures of mines and other industries) mean higher taxes for the remaining taxpayers. Finally, property owners in unincorporated communities pay a Provincial Land Tax (PLT) which, as will be noted below, is considerably less than what the property taxes would be in most cases. The high cost of services means that user fees are less likely to cover the full cost of service provision. Moreover, user fees that are appropriate in a large urban context may be less appropriate in small and remote communities. For example, user fees may not be appropriate for recreational services in remote areas because of the positive externalities associated with arenas and recreation centres. The benefits of these services extend beyond the users of the facilities. It could be argued, for example, that arenas and recreation centres provide a social service to the community, especially for youth, because there are few alternatives in remote communities. If full cost pricing is charged, those who would use the facility might engage in less socially acceptable activities. In other words, there are significant external benefits that even on the strict efficiency criteria call for at least some level of subsidization. Similarly, user fees for garbage (solid waste) may act as a disincentive for using the service and may encourage individuals to 7. A market value that is lower than the construction cost reflects the unwillingness or inability of individuals to pay the price that covers the cost in these communities. 15.

(16) dispose of their garbage on land outside the municipal boundary.. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. 3. CURRENT RELATIONSHIPS BETWEEN COMMUNITIES AT RISK AND THE PROVINCIAL GOVERNMENT. The current relationships between communities at risk and the provincial government are similar to the relationship between municipalities in general and the Province.8 There are over 100 unincorporated communities in Northern Ontario, however, which have a somewhat different relationship with the Province. Furthermore, there are additional transfer programs for communities at risk. Unincorporated communities and transfers are discussed below. 3.1. Unincorporated Communities. Municipalities in Northern Ontario are located in ten territorial districts: Algoma, Cochrane, Kenora, Manitoulin, Nipissing, Parry Sound, Rainy River, Sudbury, Thunder Bay, and Timiskaming. These districts are not municipal units and the municipalities located within them are single-tier municipalities (cities, towns, townships, and villages). Most of the geographic area of Northern Ontario, however, is not organized for municipal purposes. This means that there are people living in areas without municipal organization, mostly in small, unincorporated communities (sometimes referred to as unorganised territories). For those municipalities located in these districts, the relationship with the Province is similar to that of municipalities in the rest of the province. These municipalities are responsible for delivering similar services, they levy property taxes, user fees, and other revenue sources and they are eligible for unconditional grant funding under the Community Reinvestment Fund (CRF). District Social Services Administration Boards (DSSABs) are responsible for the delivery of Ontario Works, child care, social housing (and in some cases also for land ambulance).9 In the unincorporated communities, property owners pay a Provincial Land Tax (PLT) to the Province. In turn, the Province funds some services in these communities (see below). The PLT is similar to a property tax except that the assessment (based on values in the 1940s) is seriously out of date and the tax rate of 1.5 percent of assessed value has not changed since 1954 (Ontario Fair Tax Commission, 1993, p. 74). The PLT serves as the tax base for local services boards (optional bodies that may deliver some local services). Residents of most of the unincorporated communities also pay property taxes for education. The assessment base for education purposes, however, is more up-to-date than the PLT. As part of local government reform in 1998, there were plans to update PLT assessments but this reassessment has not yet been implemented.. 8. These are described in our paper on Vibrant Cities and City-Regions. DSSABs are similar to Consolidated Municipal Service Managers (CMSMs) in Southern Ontario. 9. 16.

(17) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. TABLE 4: SERVICE DELIVERY AND FUNDING IN NORTHERN ONTARIO Service Ontario Works. Delivery Mechanism DSSAB (or ASB). Finance For municipalities, the Province pays 80% of the program cost and 50% of administrative costs; for unincorporated areas, Province pays 100%. Child Care. DSSAB (or ASB). Province pays 80% of program costs and 50% of administrative costs. Social Housing. DSSAB (or ASB). Municipalities are responsible for the costs through DSSABs. Land Ambulance. DSSAB (or ASB). Province pays 50%. Public Health. DSSAB (or ASB). Province pays 50% of costs for municipalities and 100% of costs for unincorporated areas. Homes for the Aged. DSSAB (or ASB). Municipalities are responsible for costs through DSSABs. Libraries. LSB. Province provides some funding through Operating Grants Program. Economic Development. ASB (optional). Various provincial funding options. Airports. ASB (optional). Municipalities fund airports; Province provides support for remote airports. Land Use Planning. ASB (optional). ASBs would be responsible for costs. Provincial Offences. ASB (optional). Municipalities (and ASBs) are responsible for costs. Waste Management. ASB (optional). Waste management systems are owned privately or by municipalities or MNR. Police. ASB (optional). Municipalities are responsible for costs; Province pays for OPP unincorporated areas. Emergency Preparedness/ Response. ASB (optional). Roads and Bridges. ASB (optional). Municipalities pay for local roads. Roads LRB Funded by LRB levies and the Province Source: Based on information in Ontario Ministry of Northern Development and Mines (2000). 17.

(18) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. All unincorporated communities are contained within DSSABs and some are located in Local Services Boards (LSBs) and Local Roads Boards (LRBs).10 For those unorganised communities in local boards, the Province pays their share of the costs of delivering services. Table 4 shows who delivers services in municipalities and in the unorganized communities of Northern Ontario and who pays for them. As noted below in section 4.2, Area Services Boards can be used to consolidate service delivery over a broad range of services but these have not yet been implemented. In unincorporated communities, the Province provides 100 percent funding for public health program delivery and for Healthy Babies/Healthy Children, vaccines, speech and audiology, genetics, and provincial sexual health resources. The Ministry of Education pays for education in unincorporated communities. The Province supports the system of remote airports across Northern Ontario. Policing in unincorporated communities is provided by the OPP and the costs are funded by the Province. In terms of land use planning (not shown in Table 4), the Ministry of Natural Resources administers a small number of restricted area orders in territory without municipal organization. In areas designated as restricted, the Ministry issues permits that are required to erect a building or structure or to make improvements to lands. Some waste management systems in Northern Ontario are owned by the Ministry of Natural Resources. 3.2. Provincial Transfers to Small, Rural, and Remote Communities11. The Province provides financial assistance to small, rural, and remote communities through a variety of transfer programs. Some examples are provided in this section of the report. In the 2000 Budget, for example, the Province announced a two-year $600 million Ontario Small Town and Rural Development Initiative (OSTAR) for infrastructure and economic development. All upper and lower tier municipalities in Ontario may apply for funds under OSTAR with the exception of municipalities in the Greater Toronto Area, the City of Hamilton, the Region of Waterloo, the City of Ottawa, the City of Greater Sudbury, the Region of Niagara, the City of Thunder Bay, the City of London and the City of Windsor.12 Any municipalities with a population of less than 100,000 within any of the above urban areas are, nevertheless, eligible to apply to OSTAR. Local Services Boards in Northern Ontario are also eligible.. 10. These boards are described in Section 4.2 below. The federal government also invests in programs and services in Northern Ontario communities, for example, under Industry Canada’s Federal Economic Development Initiative for Northern Ontario (FedNor). FedNor’s programs and services are divided under five categories: connectedness (developing and enhancing telecommunications infrastructure in Northern Ontario communities); innovation (moving towards a knowledge-based economy); trade (expanding the export and trading activities of small and medium-sized businesses); investment (enhancing economic growth through investment opportunities); and community partnerships (supporting community-based economic development efforts that create employment and stimulate growth). 12 These municipalities are eligible for SuperBuild’s Millenium Partnerships Initiative. 11. 18.

(19) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. The intent of OSTAR funds is to help municipalities to provide infrastructure in agricultural and rural areas and small towns and cities. Eligible communities need to make proposals to the Province that focus on economic development and quality of life, especially with respect to health and safety (for example, water and sewers, roads and bridges, etc.). As part of the OSTAR initiative, the Rural Economic Development Program offered by OMAFRA provides cost-shared funding to address barriers to economic growth. The Northern Ontario Heritage Fund Corporation (NOHFC) is a funding program of the Ministry of Northern Development and Mines (MNDM) to assist northern communities with conditional grants, forgivable performance loans, and incentive term loans. The program components include: infrastructure, telecommunications, tourism, strategic partnerships, and community foundations. Recent initiatives under NOHFC include the following:13. 13. •. The Far North Assistance Program Supporting the Northern Ontario Economy is an infrastructure program to support economic growth by enhancing the region’s ability to attract and retain investment and improve the quality of life for residents. This program is aimed at remote northern communities.. •. The Capital Assistance to Enhance Drinking Water Protection in Northern Ontario is a program to assist northern communities to upgrade municipal water infrastructure.. •. The Capital Assistance Program for Northern Communities is a program to upgrade local infrastructure in the North necessary to attract new investment and improve the quality of life of residents.. •. The Economic Diversification Assistance Program is designed to encourage economic diversity in those communities that rely on one or a few industries. Funding is provided where there has been a economic disruption due to a major downturn in the local economy. Priority is given to northern communities that are heavily reliant on a single industry (equal to 30 percent or more of a community’s total workforce employed in one economic sector) or who are experiencing a significant economic disruption resulting in permanent displacement of at least 10 percent of the workforce in one industry, or who are experiencing difficulties due to a significant economic disruption in the last five years. Private-public partnerships, government agency partnerships, municipalities, First Nations, Local Services Boards, and not-for-profit corporations with projects in Northern Ontario are eligible for funding. Under this program, municipalities needed to pre-qualify for assistance before the end of 2002. Five communities were designated for assistance under this program (for example, Manitouwadge, Nipissing, and Mattawa). They are eligible to submit projects over the next year for approval. NOHFC will fund 75 percent of eligible costs up to a maximum of $5 million for each community.. For an evaluation of these types of economic development programs, see Section 5.2 below. 19.

(20) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. The Ministry of Municipal Affairs and Housing provides a Special Assistance Grant to municipalities facing abnormal financial difficulties arising from circumstances beyond their control. Examples where assistance may be provided include a loss in assessment in a single industry town or an unusual capital expenditure requirement. Municipalities have to apply to the Ministry for funding. The decision of the Ministry to grant funding depends on the financial situation of the municipality (for example, the state of reserves, the extent of tax arrears, the amount of long-term debt, etc.). The Ministry of Municipal Affairs and Housing also provides northern transition assistance under the Municipal Restructuring Fund. Following a restructuring, grants are provided for costs associated with the restructuring such as the consolidation of by-laws and updating computer systems. 3.3. Tax Incentive Zones. In 2003, the Ontario government announced the province’s first tax incentive zone to cover all of northern Ontario. The purpose of establishing a tax incentive zone in the north is to encourage businesses to invest and expand in smaller, rural and northern communities. Within this zone, eligible businesses would not have to pay the provincial business education tax, the capital tax, or the employer health tax. Municipalities will also have to provide full municipal property tax relief. These tax incentives will be in place as of January 1, 2004 for 10 years. To be eligible for tax incentives, businesses must commit to a minimum of five jobs and a $100,000 investment. An evaluation of these types of tax incentives can be found in section 5.2.4 below. 4. THE APPROPRIATE LEVEL OF GOVERNMENT AT THE SUB-PROVINCIAL LEVEL. In terms of economic theory, the major role assigned to sub-provincial or local governments is to provide goods and services within a particular geographic area to residents who are willing to pay for them (Bird and Slack, 1993, p. 16). If the benefits of particular services are confined to local jurisdictions (the actions of one municipality have no effect on other municipalities), efficiency is enhanced because the mix and level of services can vary according to local preferences. It is argued that local officials are in a better position to respond to local tastes and preferences than are officials of senior levels of government.14 A strong local government is one that is efficient and effective in the delivery of service, on the one hand, and accountable and responsive to its citizens on the other. Municipalities have to be 14. The provision of local services does not mean that the municipality has to produce the goods and services themselves, however. Rather, the role of local government is to make decisions about which services to provide and how to provide them. Municipalities could, for example, contract out service delivery to another government or to the private sector. See Osborne and Gaebler (1992). 20.

(21) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. small enough to provide access and large enough to be able to support a wide range of services in an efficient and effective way. If the municipality is too small (and remote) to deliver services effectively, however, then political access is less meaningful. In particular, municipalities need an adequate tax base and qualified personnel. As noted earlier, some small municipalities do not have a large enough tax base to be economically viable. In particular, they often cannot finance major capital expenditures such as road graders and fire equipment. Their limited debt capacity further inhibits their ability to make capital expenditures. Since the size of the population is small, these municipalities cannot take advantage of economies of scale in service provision. Furthermore, their remoteness often prevents them from taking advantage of economies of scale by contracting out services to neighbouring municipalities or to the private sector. As a result, small communities in remote areas tend to concentrate on the provision of a few basic services (Dougherty et al., 1999, p. 8). Inadequate resources may also mean that small and remote communities may face administrative difficulties because they are unable to find suitably qualified full-time staff. These communities have limited training opportunities to develop and maintain qualified personnel (Dougherty et al., 1999, p. 19). Some municipalities operate with a part-time staff; others operate with staff that are required to have a wide range of expertise. Specialization is virtually impossible. The lack of qualified staff limits the ability of elected officials to respond to the needs of their constituents (Ontario, 1989). Some of these problems may be overcome, however, by contracting out to other governments or the private sector or by sharing expertise among municipalities, when required. Another option increasingly applied in other countries is to take advantage of new communication technologies to encourage both representative government and participatory democracy, as well as the provision of information and some services, particularly for certain groups and those in remote districts. The best-known example is of that of e-government in which many of the political, information and management elements of local government, like distance education and e-commerce, can be carried on through the internet over vast distances where face-to-face participation is difficult or impossible. Several experiments in the area of “intelligent development and governance” are underway in both Europe and Australia (Grieco, 2000), and have been widely applied in services such as health services that involve assessment and frequent feedback. The obvious limitation is that other services, notably ground-based services, simply cannot be delivered in this fashion, but others can and at lower cost. The challenge is to find the best balance of public participation and service provision through technological innovation. In terms of access and accountability, the lack of mobility for some segments of the population in remote communities brings into question the role of local government. If residents are not mobile, then they are unlikely to respond to taxes and expenditures by moving to other communities. To the extent that the efficiency of local government relies on it being responsive to local citizens, its role in remote areas is more complicated than in urban areas to the extent that proximity means greater access to politicians.15 15. See Litvack et al. (1998, p. 2) for a discussion of the limitations of “voice” and “exit” in 21.

(22) 4.1. Governance Options. Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. There are several options that may be considered for structuring municipal government in remote areas: • • • • • •. two-tier governments a single-tier government that provides all services inter-municipal agreements special purpose districts senior level of government responsible for funding some municipal services intergovernmental transfers.16. Each of these options is evaluated according to its ability to achieve a number of criteria. These include: the capacity to benefit from economies of scale, the opportunity to internalize spillovers (external benefits and costs), the capacity for being accessible and accountable to citizens, the opportunity for citizens to satisfy local preferences, and the ability to fund expenditures in a fair and equitable manner.17 Two-Tier Government A two-tier municipal structure is generally appropriate in large geographic and metropolitan areas, typically where there are a number of contiguous municipalities responsible for a variety of municipal services. The upper tier is generally responsible for services that benefit the entire region; that generate benefit or cost spillovers (externalities) across the entire area; that are primarily income redistributional (social services, social housing); that display economies of scale (water, sewer, and solid waste); and that are to be provided at uniform levels and standards across the entire area. For services that do not display these characteristics and where local responsiveness is important, responsibility generally rests with the local municipality where one exists. Within a two-tier structure, each level of government has its own revenue base (local taxes and user charges). For lower-tier services, funding comes from a local revenue base that is contained within the local community. For upper-tier services, the revenue base encompasses the entire area. Grants from a senior level of government can also play a role. In remote areas where municipalities are isolated from each other, distances are such that the benefits or costs of services provided by one municipality are unlikely to spill over into adjacent smaller municipalities and rural areas in developing countries where mobility is limited. 16 17. For a discussion of similar options for metropolitan areas, see Slack (2001). These criteria are explained in more detail in our paper on Vibrant Cities and City-Regions. 22.

(23) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. municipalities. Similarly, distances between municipalities and their isolation from each other prevents them from benefiting from economies of scale in the provision of services whose costs per unit decline as the number of residents served increases. Hence, the rationale for a two-tier structure at the municipal level in remote areas is less compelling than it is for larger metropolitan areas but it still has some merit, particularly if there is a desire to share the costs of services over a broader area. This type of redistribution raises the question of who should subsidize small, isolated communities, however: taxpayers in other communities in the region or taxpayers across the province. Single-Tier Government In a single-tier structure, there is only one level of municipal government that is responsible for all municipal services. In remote areas, municipalities are generally small and isolated from each other. There may be advantages from small annexations where properties are located just outside municipal boundaries and residents of these neighbouring communities are using services within the municipality without paying for them. There is less justification, however, for large-scale amalgamations of several small, isolated communities since the externalities are unlikely to extend that far and there are no economies of scale to be gained. Small, isolated municipalities in remote areas usually face higher per unit costs of service delivery than do larger urban areas. Furthermore, these municipalities almost always have a smaller and less diversified revenue base from which they can raise locally generated revenues. This combination of higher per unit costs and lower fiscal capacity raises the question of whether or not there are ways within a single-tier structure that local services could be provided in a less costly fashion or whether they should be funded differently than in larger metropolitan areas. Some of these options are considered below. Inter-Municipal Agreements An inter-municipal agreement exists when one municipality agrees contractually to buy a service from another municipality, generally an adjacent municipality. These agreements may exist for a variety of services but are most common for water provision, fire and police protection, and maintenance of roads (snowploughing, in particular). They are used more frequently in small municipalities (villages and townships, for example) than in large municipalities (cities and towns). The rationale for entering an agreement is almost always cost savings - it is deemed to be less costly to buy a service from an adjacent municipality than it is to provide it on its own because it can achieve benefits from economies of scale. Although these agreements have been used for a long time in many smaller contiguous municipalities, they are less likely to work or be appropriate where municipalities, such as those in remote areas, are isolated from each other. Again, the reason is that a municipality is unlikely to benefit from buying services from other municipalities where distances between them are large. 23.

(24) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. Special Purpose Districts In areas where there are a number of contiguous municipalities, special purpose districts are sometimes used to provide a range of services for each municipality within the district. Service responsibilities of special purpose districts generally include those that generate externalities; benefit from economies of scale; are income redistributional; and for which district wide uniform standards are important. Where special purpose districts exist, they play the same role and perform the same functions as an upper-tier level of municipal government in a two-tier structure. They are less formal in terms of governing structure, however, because they generally have a board with members appointed from the different municipal councils. Problems similar to a two-tier structure for non-contiguous municipalities in remote areas would also occur with special purpose districts. Provision of Services by Senior Levels of Government Given that municipalities in remote areas are typically unable to take advantage of economies of scale in service provision and given their smaller and less diversified tax base, one option is that senior levels of government provide local services instead of municipalities. This option has certain obvious advantages, especially in terms of spreading the costs and increasing the range of services but it could seriously hinder accountability if there is no direct link between individual consumption of a service and payment for it. When individuals receive a service for which they are not taxed or charged a fee, there is an incentive for them to consume more than they would if they paid for it. The provision of services by a senior level of government also raises concerns about local responsiveness. It may be less appropriate for a senior level of government to provide services because it is further removed from local residents, making it difficult to determine the quality and quantity of output to provide in each municipality. Senior levels of government are likely to be less responsive and less accountable to local residents than a local government. At the same time, it is only senior governments that can ensure a uniform, minimum standard of service across their jurisdictions. Reliance on Intergovernmental Transfers Another option is for senior levels of government to provide grant assistance to communities in remote areas and have the municipalities deliver and fund local services themselves. If service provision is considerably more expensive and considerably higher levels of financial assistance are required, there is a question about the use of provincial resources to foster communities artificially in remote areas.18 An important issue of debate is whether communities that cannot survive in the absence of disproportionate senior government funding (when compared to other urban areas) should exist at all. 18. The issue is not whether taxpayers in remote communities should be excluded from paying for municipal services. Clearly, they should pay at least some of the costs of services if accountability, fairness, and efficiency are to be achieved. 24.

(25) Copy for archive purposes. Please consult original publisher for current version. Copie à des fins d’archivage. Veuillez consulter l’éditeur original pour la version actuelle.. Arguments can be made for and against government subsidization of remote areas. If a municipality in a remote area is essential for the provision of an important public service such as national security or some territorial imperative, the ‘public good’ benefit of this service and the externalities associated with it may justify higher grant assistance from senior levels of government to keep these communities viable. If the existence of municipalities in remote areas does not provide “public good” benefits, there may be less justification for large subsidies to these communities. For example, in the case of a company town where the municipality’s existence is vital to the success of the company, justification for grant funding is less obvious. The argument against subsidizing remote areas is based largely on efficiency criteria. Reliance on grant funding reduces the incentive for residents of these municipalities to leave and move to areas where there are greater employment and educational opportunities. If provincial economic efficiency is an important objective, then encouraging mobility of labour out of remote areas may be more appropriate than providing subsidies which encourage them to stay. That is not to say that they should not remain in these communities but rather that there is no economic justification for higher subsidies. Politics sometimes leads to a different conclusion, however, because people form emotional attachments to communities and politicians are reluctant to move them even though the long term costs are high. There are also critical social dimensions to the debate on the subsidization of rural and remote communities based on equity rather than efficiency criteria. The principal social argument in support of subsidization is that thousands of people currently live in these communities and most are unlikely to move. They also expect and deserve levels of public services that are similar, within obvious limits, to those enjoyed by residents elsewhere in the province. There are obvious trade-offs here for both residents and governments; somewhat lower service levels and reduced choices in exchange for less expensive land and housing, easier access to natural environments, and lower levels of pollution and congestion. The broader theoretical argument for subsidization is drawn from the concept of place-based equity, that is that people have rights to public goods whenever they choose to locate. In other words, there is an obligation on the larger society to provide minimum levels of services to all citizens wherever they live. At the same time there is a strong argument for discouraging the construction of new settlements in the most remote areas of the province. 4.2. Governance Structures in Small, Rural, and Remote Communities. Small, rural, and remote communities are located in all parts of the province, as noted earlier. There are three types of municipal government structure in southern Ontario: the regional system, the county system, and the single-tier system. In the regional system, there is an uppertier municipality that provides area-wide services (such as social services, social housing, regional roads, policing, waste management, and other services) and a lower-tier municipality that provides local services (fire, parks and recreation, for example). The county system is also a two-tier system with the county providing some services and the lower-tiers providing some services. Cities and separated towns that are located in a county but are not part of the county system are referred to as single-tier municipalities (examples include London, Windsor, and 25.